Our time: stability through volatility
Remarks by
Steve Williams
Former Chief Executive Officer
Mark Little
President and Chief Executive Officer
and
Alister Cowan
EVP and Chief Financial Officer
Annual General Meeting
Calgary, Alberta
May 2, 2019
Check against delivery
Steve Williams, Former Chief Executive Officer
Thanks Mike and good morning. It’s nice to see so many familiar faces in the audience today.
As you might expect, there’s a bit of a retirement theme to my remarks today. I’d like to start by highlighting the retirement of one of our long-standing Board members, Dominic D’Alessandro. Dominic has been a Board member with us since 2009, most recently serving as chair of our Governance Committee and as a member of our Audit Committee. Dominic, thank you for your contributions to our Board and to Suncor. All the very best to you in your future endeavours.
I’ve always said that Annual General Meetings provide an opportunity for reflection. And this AGM is no different. Certainly, it’s a time to look back, but it’s also a time to look ahead. When I first started in this role, I remarked that it was “our time” – meaning that with a strong strategy, integrated business, focus on operational excellence and a highly capable management team, it was Suncor’s time to lead.
My view hasn’t changed. Suncor still has a compelling investor proposition and continues to be at the forefront in many ways:
That was underscored in 2018 when we returned $5.4 billion to shareholders through dividends and share repurchases. We also increased our dividend, with 2019 marking the 17th year of continuous dividend increases for shareholders and increased our buyback program after buying back approximately $5 billion worth of stock over the previous two years.
We’ve also successfully executed on our plans. A significant accomplishment this past year was the on- time commissioning and accelerated ramp up of Fort Hills. Fort Hills is our newest mining project and will deliver energy the world needs and generate returns for the next 50 years. We consider Fort Hills “the new face of oil sands.” I don’t say that lightly. Its paraffinic froth technology results in lower operating costs. Just as important, the technology results in a greenhouse gas intensity on par with the average refined barrel in the United States. And, Fort Hills reflects our evolving relationship with Indigenous Peoples.
We’re honoured to have a significant equity partnership with two First Nations at the East Tank Farm – and believe it can serve as a model for future Indigenous participation in energy development going forward.
We’ve also been proactive, making significant investments in market access opportunities. These, along with sound strategies have shielded us, unlike others, from the impacts of pipeline delays and location differentials.
In short, 2018 was a great year for us, helping to add to our list of remarkable accomplishments over the years. Thanks to a strong senior leadership team, and the efforts of countless employees, we’ve made significant strides in creating energy for a better world. We’re demonstrating that we can be counted on to deliver – consistently, and always with shareholder, employee and community interests in mind.
You will be hearing from Mark Little, Suncor’s new President and CEO shortly. But let me just say that with Mark at the helm, I have no doubt the future for the company will continue to be bright.
Before I turn the microphone over to Alister, I want to close with a few thank-you’s. To you, our shareholders, the Board of Directors, Mark and the management team, Suncor employees, and last, but certainly not least, to my family - thank you for your support.
Over to you, Alister.
Alister Cowan, EVP and Chief Financial Officer
Thanks Steve and good morning everyone.
A big thanks to you, Steve, for being our President and CEO these past seven years. It’s been a real pleasure working with you. You’ve had a profound impact on Suncor – and our industry’s reputation both at home and abroad - and we’re very grateful to have had the benefit of your leadership.
Today, I would like to focus my comments on two areas: Suncor’s performance metrics and our investor proposition, what we call the Suncor Advantage.
I’ll begin with Suncor’s 2018 production, which totaled over 730,000 barrels of oil equivalent per day. That figure included almost 630,000 barrels per day from Oil Sands, with about 144,000 barrels per day from Syncrude, over 66,000 barrels per day from Fort Hills and just over 103,000 from Exploration and Production.
We grew production by seven percent over 2017 – even while Suncor was undergoing the largest maintenance program in our history. Our 2019 guidance includes a ten percent growth in production, taking into account the industry-wide mandated production curtailments by the Government of Alberta.
We continue to work on costs, with Oil Sands operations cash operating costs coming in at $25.25 and Fort Hills cash operating costs of $31.20. As we begin to run Fort Hills at our targeted 90% utilization, we expect these costs to come down. We’re projecting Fort Hills cash operating costs to be between $23 and $26 in our 2019 full year outlook range. With a planned bi-directional pipeline between Syncrude and our base plant expected to be in service by the end of 2020, we believe we can enhance Syncrude’s long term reliability and reduce Syncrude cash operating costs below $30. In the spirit of operational excellence, we also continue to look for cost reduction opportunities across the organization.
Suncor’s significant strength was evident in our ability to generate cash. Funds from operations for the year were over $10.1 billion, well past the $9.1 billion achieved in 2017. Suncor meanwhile generated just over $3.8 billion in discretionary free funds flow.
Suncor’s integrated business continues to deliver value for shareholders, and as Steve pointed out, we’re able to do so regardless of the volatility in the Canadian crude differential. We are one of the few Canadian producers in this position – which speaks to our competitive advantage and compelling investor proposition.
While we’ve been able to generate significant cash, we’ve continued to be disciplined in what we do with our capital. In 2018, we recorded about $5.2 billion in capital expenditures, down from over $5.8 billion in 2017. That included $3.9 in sustaining capital and $1.3 billion in growth initiatives. Our 2019 guidance includes a total capital expenditure range of between $4.9 and $5.6 billion and we’ll continue to be disciplined in our approach.
In stewarding the company and the interests of shareholders, we’ve been conscious to maintain the strength of our balance sheet. As of December 31st, net debt to funds from operations stood at 1.5 times, with a 28% metric for total debt to capital and liquidity of $5.8 billion. Our focus and commitment has been recognized with a strong investment grade credit rating. Our solid balance sheet and free cash flow generation continues to provide us with the ability to return more cash to shareholders. That’s been through a combination of share repurchases and consistent sustainable dividend increases.
2018 saw us increase the dividend by 12% and purchase approximately 64.4 million shares for a total spend since 2017 of $5 billion. And of course in February 2019, we approved a further 17% dividend increase and a $2 billion increase to the share repurchase plan.
Steve noted that it is Suncor’s time. That perspective is supported by three key factors:
All of these are competitive differentiators continue to demonstrate our stability and ability to take advantage of opportunities through volatility.Thank you for your continued commitment through your investment. We appreciate your support for Suncor, the oil sands and our industry.
With that, I’ll now turn the floor over to Mark Little.
Mark Little, President and Chief Executive Officer
Thanks Alister and good morning everyone.
I’d like to echo your comments about Steve. Steve has brought Operational Excellence to Suncor which has allowed us to thrive during his time as CEO. He’s been an outstanding advocate for Suncor and our industry both here and abroad. I’m honoured to be following in Steve’s footsteps and together with Suncor’s board, the senior leadership team, and employees, I’m looking forward to building on the strong foundation that he’s helped create at Suncor.
Alister spoke to the factors that set Suncor apart from most oil and gas producers. While we continue to leverage these strengths, we know that our continued leadership and competitiveness depends on staying focused going forward.
So what does that mean? It means carefully looking at how we allocate capital. As Alister mentioned, the expected capital range for 2019 is between $4.9 and $5.6 billion. The majority will be directed to sustaining capital and maintenance activities.
We expect the remaining capital to be directed towards growing production and optimizing our existing assets through significant value add projects. For example, the Syncrude-Suncor pipeline, various Exploration and Production initiatives, and technology deployment.
In the medium term, our focus will be on growing “free funds flow” by an additional $2 billion by 2023. We expect to achieve that through a combination of E&P investments and Oil Sands debottleneck activities. We’ll also look to achieve margin improvements through projects such as the coke fired boiler replacement and value chain optimization. We’ll also strive for opex and sustaining capital savings through a variety of ways, including technology and innovation, which I’ll speak to a bit later.
Longer term, beyond 2024, we see the potential for significant production growth by sanctioning a number of in situ projects. But, as we’ve indicated previously, we’ll need to see tangible progress on new pipelines before we sanction any major new developments. I fully understand that in my role, this will require my advocacy for our industry, including market access for the benefit of Suncor, our stakeholders, Albertans and Canadians.
I think it’s important to put clearly on record that there won’t be any major shifts in direction of the company, when it comes to the decisions that we make. The success that we’ve achieved at Suncor is due to a disciplined and consistent approach, rooted in operational excellence and a deep commitment to sustainability. That commitment to sustainability – the intertwined economic, environmental and social considerations associated with energy development – will continue at Suncor.
We will continue to engage with a wide variety of stakeholders in the spirit of collaboration. We will continue to be part of the public policy discussions and consultations. We will continue to improve our relationship with Indigenous Peoples. And we’ll continue to be an active part of communities through the Suncor Energy Foundation.
One of the pressing challenges of our time is climate change. The challenge that lies ahead of all of us is how to develop our resources in the best way possible, while reducing environmental impact and ensuring continued prosperity. Clearly, more needs to be done to address this complex issue. Suncor will continue to be a part of that journey.
Technology will certainly be key. We also known that to remain successful, we must continue to innovate to address the environmental, as well as economic and social challenges we face. The good news is that Suncor has a history of innovation – moving from bucket wheel to truck and shovel, implementing new in situ technology, and finding new ways to engage with Indigenous communities.
We’re working to drive down the emissions intensity of our operations, through a greenhouse gas goal. And, with technology like we deployed at Fort Hills, we’re bringing our production in line with the average US refined barrel in regards to GHG emissions.
One of the ways we’re sharing our progress is through our Report on Sustainability. We’ve also been transparent about what climate change means for our business by issuing a Climate Risk Report. Those efforts will continue.
I’m particularly excited about the next evolution of our company – what we call Suncor 4.0. So why 4.0? It’s meant to reflect our evolution as a company:
In 4.0, we will apply digital technologies to accelerate operational excellence. We expect that will help us achieve world-class performance, generate value, drive and enhance our competitive advantage, and create the workplace of the future.
Our early steps have been encouraging. We’ve recently begun work in a variety of areas using robotics, artificial intelligence, and remote sensing technology. In fact, last year, we invested $635 million in technology development and deployment, including digital transformation.
Our journey into the digital world will only accelerate. As we step further into this space, we’re cognizant that it’s not just about shiny new technology. It’s really about our people, our culture and our leadership. And how we can get our organization to work together to fully leverage technology to improve our performance. Let me be clear. Technology and innovation are part of our DNA. I have no doubt that with the ingenuity, creativity, and energy of our people, we will continue to lead.
An equally important part of our future depends on the relationship that we – Suncor, our industry, and broader society – have with Indigenous communities.
Having been personally involved in the East Tank Farm partnership with Fort McKay and Mikisew Cree First Nations, I have deepened my understanding and appreciation of the importance of building mutual trust and respect. And as we continue on this journey, we remain focused on advancing our social goal – changing the way we think and act towards Indigenous Peoples.
We’ll continue to support Indigenous youth, increase the Indigenous participation in our workforce and create ways for economic and social reconciliation. We’ll continue to listen and learn.
We know that shareholders have placed their trust in Suncor, in part, for our unwavering focus on operational excellence, capital discipline, and profitable growth. We also know that you’ve invested in Suncor knowing that the Board, the senior leadership team, and employees are committed to the highest standards of economic, environmental and social performance.
We will remain focused on maintaining that confidence – not only through words, but through our performance. On behalf of our leadership team and our dedicated employees, thank you for your support.
I’ll now turn the floor back to Mike.
Steve Williams
Former Chief Executive Officer
Mark Little
President and Chief Executive Officer
and
Alister Cowan
EVP and Chief Financial Officer
Annual General Meeting
Calgary, Alberta
May 2, 2019
Check against delivery
Steve Williams, Former Chief Executive Officer
Thanks Mike and good morning. It’s nice to see so many familiar faces in the audience today.
As you might expect, there’s a bit of a retirement theme to my remarks today. I’d like to start by highlighting the retirement of one of our long-standing Board members, Dominic D’Alessandro. Dominic has been a Board member with us since 2009, most recently serving as chair of our Governance Committee and as a member of our Audit Committee. Dominic, thank you for your contributions to our Board and to Suncor. All the very best to you in your future endeavours.
I’ve always said that Annual General Meetings provide an opportunity for reflection. And this AGM is no different. Certainly, it’s a time to look back, but it’s also a time to look ahead. When I first started in this role, I remarked that it was “our time” – meaning that with a strong strategy, integrated business, focus on operational excellence and a highly capable management team, it was Suncor’s time to lead.
My view hasn’t changed. Suncor still has a compelling investor proposition and continues to be at the forefront in many ways:
- Certainly through our focus on operational excellence, capital discipline and profitable growth
- Also through the improvements we’ve made with technology, innovation and collaboration
- And by consistently returning cash to you our shareholders through variable commodity cycles
That was underscored in 2018 when we returned $5.4 billion to shareholders through dividends and share repurchases. We also increased our dividend, with 2019 marking the 17th year of continuous dividend increases for shareholders and increased our buyback program after buying back approximately $5 billion worth of stock over the previous two years.
We’ve also successfully executed on our plans. A significant accomplishment this past year was the on- time commissioning and accelerated ramp up of Fort Hills. Fort Hills is our newest mining project and will deliver energy the world needs and generate returns for the next 50 years. We consider Fort Hills “the new face of oil sands.” I don’t say that lightly. Its paraffinic froth technology results in lower operating costs. Just as important, the technology results in a greenhouse gas intensity on par with the average refined barrel in the United States. And, Fort Hills reflects our evolving relationship with Indigenous Peoples.
We’re honoured to have a significant equity partnership with two First Nations at the East Tank Farm – and believe it can serve as a model for future Indigenous participation in energy development going forward.
We’ve also been proactive, making significant investments in market access opportunities. These, along with sound strategies have shielded us, unlike others, from the impacts of pipeline delays and location differentials.
In short, 2018 was a great year for us, helping to add to our list of remarkable accomplishments over the years. Thanks to a strong senior leadership team, and the efforts of countless employees, we’ve made significant strides in creating energy for a better world. We’re demonstrating that we can be counted on to deliver – consistently, and always with shareholder, employee and community interests in mind.
You will be hearing from Mark Little, Suncor’s new President and CEO shortly. But let me just say that with Mark at the helm, I have no doubt the future for the company will continue to be bright.
Before I turn the microphone over to Alister, I want to close with a few thank-you’s. To you, our shareholders, the Board of Directors, Mark and the management team, Suncor employees, and last, but certainly not least, to my family - thank you for your support.
Over to you, Alister.
Alister Cowan, EVP and Chief Financial Officer
Thanks Steve and good morning everyone.
A big thanks to you, Steve, for being our President and CEO these past seven years. It’s been a real pleasure working with you. You’ve had a profound impact on Suncor – and our industry’s reputation both at home and abroad - and we’re very grateful to have had the benefit of your leadership.
Today, I would like to focus my comments on two areas: Suncor’s performance metrics and our investor proposition, what we call the Suncor Advantage.
I’ll begin with Suncor’s 2018 production, which totaled over 730,000 barrels of oil equivalent per day. That figure included almost 630,000 barrels per day from Oil Sands, with about 144,000 barrels per day from Syncrude, over 66,000 barrels per day from Fort Hills and just over 103,000 from Exploration and Production.
We grew production by seven percent over 2017 – even while Suncor was undergoing the largest maintenance program in our history. Our 2019 guidance includes a ten percent growth in production, taking into account the industry-wide mandated production curtailments by the Government of Alberta.
We continue to work on costs, with Oil Sands operations cash operating costs coming in at $25.25 and Fort Hills cash operating costs of $31.20. As we begin to run Fort Hills at our targeted 90% utilization, we expect these costs to come down. We’re projecting Fort Hills cash operating costs to be between $23 and $26 in our 2019 full year outlook range. With a planned bi-directional pipeline between Syncrude and our base plant expected to be in service by the end of 2020, we believe we can enhance Syncrude’s long term reliability and reduce Syncrude cash operating costs below $30. In the spirit of operational excellence, we also continue to look for cost reduction opportunities across the organization.
Suncor’s significant strength was evident in our ability to generate cash. Funds from operations for the year were over $10.1 billion, well past the $9.1 billion achieved in 2017. Suncor meanwhile generated just over $3.8 billion in discretionary free funds flow.
Suncor’s integrated business continues to deliver value for shareholders, and as Steve pointed out, we’re able to do so regardless of the volatility in the Canadian crude differential. We are one of the few Canadian producers in this position – which speaks to our competitive advantage and compelling investor proposition.
While we’ve been able to generate significant cash, we’ve continued to be disciplined in what we do with our capital. In 2018, we recorded about $5.2 billion in capital expenditures, down from over $5.8 billion in 2017. That included $3.9 in sustaining capital and $1.3 billion in growth initiatives. Our 2019 guidance includes a total capital expenditure range of between $4.9 and $5.6 billion and we’ll continue to be disciplined in our approach.
In stewarding the company and the interests of shareholders, we’ve been conscious to maintain the strength of our balance sheet. As of December 31st, net debt to funds from operations stood at 1.5 times, with a 28% metric for total debt to capital and liquidity of $5.8 billion. Our focus and commitment has been recognized with a strong investment grade credit rating. Our solid balance sheet and free cash flow generation continues to provide us with the ability to return more cash to shareholders. That’s been through a combination of share repurchases and consistent sustainable dividend increases.
2018 saw us increase the dividend by 12% and purchase approximately 64.4 million shares for a total spend since 2017 of $5 billion. And of course in February 2019, we approved a further 17% dividend increase and a $2 billion increase to the share repurchase plan.
Steve noted that it is Suncor’s time. That perspective is supported by three key factors:
- the resiliency of our free funds flow generation throughout various market cycles;
- our unique integrated business model;
- and finally, our long-life, low-decline and low-cost reserves.
All of these are competitive differentiators continue to demonstrate our stability and ability to take advantage of opportunities through volatility.Thank you for your continued commitment through your investment. We appreciate your support for Suncor, the oil sands and our industry.
With that, I’ll now turn the floor over to Mark Little.
Mark Little, President and Chief Executive Officer
Thanks Alister and good morning everyone.
I’d like to echo your comments about Steve. Steve has brought Operational Excellence to Suncor which has allowed us to thrive during his time as CEO. He’s been an outstanding advocate for Suncor and our industry both here and abroad. I’m honoured to be following in Steve’s footsteps and together with Suncor’s board, the senior leadership team, and employees, I’m looking forward to building on the strong foundation that he’s helped create at Suncor.
Alister spoke to the factors that set Suncor apart from most oil and gas producers. While we continue to leverage these strengths, we know that our continued leadership and competitiveness depends on staying focused going forward.
So what does that mean? It means carefully looking at how we allocate capital. As Alister mentioned, the expected capital range for 2019 is between $4.9 and $5.6 billion. The majority will be directed to sustaining capital and maintenance activities.
We expect the remaining capital to be directed towards growing production and optimizing our existing assets through significant value add projects. For example, the Syncrude-Suncor pipeline, various Exploration and Production initiatives, and technology deployment.
In the medium term, our focus will be on growing “free funds flow” by an additional $2 billion by 2023. We expect to achieve that through a combination of E&P investments and Oil Sands debottleneck activities. We’ll also look to achieve margin improvements through projects such as the coke fired boiler replacement and value chain optimization. We’ll also strive for opex and sustaining capital savings through a variety of ways, including technology and innovation, which I’ll speak to a bit later.
Longer term, beyond 2024, we see the potential for significant production growth by sanctioning a number of in situ projects. But, as we’ve indicated previously, we’ll need to see tangible progress on new pipelines before we sanction any major new developments. I fully understand that in my role, this will require my advocacy for our industry, including market access for the benefit of Suncor, our stakeholders, Albertans and Canadians.
I think it’s important to put clearly on record that there won’t be any major shifts in direction of the company, when it comes to the decisions that we make. The success that we’ve achieved at Suncor is due to a disciplined and consistent approach, rooted in operational excellence and a deep commitment to sustainability. That commitment to sustainability – the intertwined economic, environmental and social considerations associated with energy development – will continue at Suncor.
We will continue to engage with a wide variety of stakeholders in the spirit of collaboration. We will continue to be part of the public policy discussions and consultations. We will continue to improve our relationship with Indigenous Peoples. And we’ll continue to be an active part of communities through the Suncor Energy Foundation.
One of the pressing challenges of our time is climate change. The challenge that lies ahead of all of us is how to develop our resources in the best way possible, while reducing environmental impact and ensuring continued prosperity. Clearly, more needs to be done to address this complex issue. Suncor will continue to be a part of that journey.
Technology will certainly be key. We also known that to remain successful, we must continue to innovate to address the environmental, as well as economic and social challenges we face. The good news is that Suncor has a history of innovation – moving from bucket wheel to truck and shovel, implementing new in situ technology, and finding new ways to engage with Indigenous communities.
We’re working to drive down the emissions intensity of our operations, through a greenhouse gas goal. And, with technology like we deployed at Fort Hills, we’re bringing our production in line with the average US refined barrel in regards to GHG emissions.
One of the ways we’re sharing our progress is through our Report on Sustainability. We’ve also been transparent about what climate change means for our business by issuing a Climate Risk Report. Those efforts will continue.
I’m particularly excited about the next evolution of our company – what we call Suncor 4.0. So why 4.0? It’s meant to reflect our evolution as a company:
- being the establishment of Suncor and its mine capability,
- being when we implemented technology to make oil sands economic and grow, and
- being our merger with Petro-Canada and how we’ve leveraged our integrated model and journey to operational excellence.
In 4.0, we will apply digital technologies to accelerate operational excellence. We expect that will help us achieve world-class performance, generate value, drive and enhance our competitive advantage, and create the workplace of the future.
Our early steps have been encouraging. We’ve recently begun work in a variety of areas using robotics, artificial intelligence, and remote sensing technology. In fact, last year, we invested $635 million in technology development and deployment, including digital transformation.
Our journey into the digital world will only accelerate. As we step further into this space, we’re cognizant that it’s not just about shiny new technology. It’s really about our people, our culture and our leadership. And how we can get our organization to work together to fully leverage technology to improve our performance. Let me be clear. Technology and innovation are part of our DNA. I have no doubt that with the ingenuity, creativity, and energy of our people, we will continue to lead.
An equally important part of our future depends on the relationship that we – Suncor, our industry, and broader society – have with Indigenous communities.
Having been personally involved in the East Tank Farm partnership with Fort McKay and Mikisew Cree First Nations, I have deepened my understanding and appreciation of the importance of building mutual trust and respect. And as we continue on this journey, we remain focused on advancing our social goal – changing the way we think and act towards Indigenous Peoples.
We’ll continue to support Indigenous youth, increase the Indigenous participation in our workforce and create ways for economic and social reconciliation. We’ll continue to listen and learn.
We know that shareholders have placed their trust in Suncor, in part, for our unwavering focus on operational excellence, capital discipline, and profitable growth. We also know that you’ve invested in Suncor knowing that the Board, the senior leadership team, and employees are committed to the highest standards of economic, environmental and social performance.
We will remain focused on maintaining that confidence – not only through words, but through our performance. On behalf of our leadership team and our dedicated employees, thank you for your support.
I’ll now turn the floor back to Mike.